The short answer
Indirect spend covers goods and services that keep a business running but do not become part of what it sells: software, professional services, facilities, marketing, travel, office and MRO supplies, and temporary labor. It is hard to manage because many departments buy it in small amounts through many channels. Get visibility first, then put guided buying and preferred suppliers in place for the biggest categories.
On this page
In a manufacturing company, direct spend gets the attention. Raw materials and components have dedicated buyers, forecasts, and supplier scorecards. Meanwhile, marketing is hiring agencies, IT is renewing software, facilities is signing service contracts, and hundreds of employees are expensing things. That second pile is indirect spend, and in many service companies it is nearly all of what they buy.
What counts as indirect spend
Indirect spend is any purchase that supports operations rather than becoming part of the product or service you sell. The line depends on your business. Servers are direct spend for a cloud hosting company and indirect for a bank.
Common indirect categories for US companies:
- Software and SaaS subscriptions
- IT hardware and telecom
- Professional services: consulting, legal, accounting, audit
- Marketing, advertising, and agencies
- Facilities: rent, utilities, janitorial, security, maintenance
- MRO supplies
- Travel, meetings, and events
- Temporary staffing and contractors
- Fleet and logistics not tied to product delivery
- Office supplies, furniture, and employee services
Why indirect spend is hard to control
Nobody owns it end to end
Direct spend has a supply chain team. Indirect spend is owned by whoever needs the thing. Each department manager makes sensible buying decisions for their area, but nobody sees the whole picture.
It comes through many channels
POs, invoices without POs, corporate cards, employee reimbursements, and SaaS auto-renewals all carry indirect spend. Pulling it together into one view is often the hardest part.
It is fragmented
Indirect spend tends to involve many suppliers with small amounts each. That makes it expensive to manage supplier by supplier and easy for costs to creep up unnoticed.
Requirements are specific
A marketing leader has strong views on which agency to use. An engineering team wants a particular tool. Standardizing indirect categories involves more persuasion than standardizing a raw material specification.
A practical approach
1. Build one view of indirect spend
Combine AP, PO, card, and expense data. Merge duplicate supplier names and classify spend into a consistent category tree. Until you can see it, you cannot prioritize it. Spend management software and spend analytics tools can speed this up considerably.
2. Prioritize categories by size and controllability
Rank categories by spend and by how much procurement can influence them. Rent is large but negotiated rarely. Software and staffing are large and renew often, which makes them good early targets. A simple two-by-two of spend versus influence gives you a starting list.
3. Assign category owners
Give each priority category an owner, usually a procurement category manager working with a business partner. For software, that might be procurement plus the IT asset manager. For marketing services, procurement plus the marketing operations lead.
4. Set up guided buying
Make the right way to buy the easy way. Guided buying means employees start in one place, describe what they need, and get sent to the right channel: a catalog, a preferred supplier, a card with limits, or a sourcing request for larger purchases. Our eProcurement software guide covers the tools that support this.
5. Put preferred suppliers under contract
For each priority category, negotiate agreements with a small set of preferred suppliers and load their pricing into catalogs or punchout where possible. This is where vendor consolidation and indirect spend management overlap.
6. Track compliance and leakage
Watch the share of category spend going to preferred suppliers and the volume of card or no-PO spend in each category. Rising leakage usually means the preferred channel is too slow or does not cover what people need.
Metrics for indirect spend
| Metric | What it shows |
|---|---|
| Indirect spend under management | How much indirect spend procurement influences |
| Spend with preferred suppliers by category | Whether contracts are being used |
| No-PO invoice rate | How much buying happens outside the process |
| Card spend in controlled categories | Leakage around the preferred channel |
| Savings by category | Financial impact of category work |
For formulas and definitions, see our procurement metrics reference.
Where to start this quarter
If you have never managed indirect spend as a program, pick one category that is large, renews often, and has a frustrated business owner. Software is the most common choice. Build the spend view, negotiate with the top suppliers, set up a simple buying path, and report results after two quarters. That first win earns you the credibility to take on the next category.
Key takeaways
- Indirect spend is everything you buy to run the business rather than to make what you sell.
- It is hard to control because it is fragmented, spread across departments, and bought through many channels.
- Build one spend view first, then prioritize categories by size and how much procurement can influence them.
- Guided buying and preferred suppliers make the compliant path the easy one.
Frequently asked questions
Indirect spend is money spent on goods and services that support business operations but do not become part of the product or service sold, such as software, facilities, marketing, travel, and professional services.
Direct spend covers materials and services that go into what a company sells. Indirect spend covers everything else the company needs to operate. The same item can be direct for one company and indirect for another.
It is spread across many departments and suppliers, often in small amounts, and flows through POs, cards, expenses, and auto-renewals. No single team usually owns it end to end.
Start with large categories that renew often and that procurement can influence, such as software and SaaS, temporary staffing, marketing services, and IT hardware.
Guided buying is a single starting point where employees describe what they need and are directed to the right channel, such as a catalog, preferred supplier, card, or sourcing request.
Bring indirect spend under control
Let us show you guided buying, preferred suppliers, and category reporting working together.